U.S. home prices continued to rise in August 2026, but the housing market is losing momentum as higher mortgage rates push buyers to the sidelines and expose widening differences between regions.
Single-family home prices increased 1.8% from a year earlier in August, up from 1.6% in July, according to Cotality’s latest Home Price Index. But prices fell 0.1% from July, and the number of major metropolitan areas recording negative three-month price momentum climbed to 31 from 19 a month earlier.
The contrast is becoming increasingly important: annual price growth remains positive, while more recent measures show the market cooling.
August’s data also largely reflect transactions involving mortgages that were locked in before the late-August jump in rates, meaning the full impact of higher borrowing costs may not yet be reflected in home prices. Cotality said buyer pullback became evident in September pending-home-sales activity.
Cotality expects home prices to decline month over month through the winter, with annual U.S. appreciation slowing to about 1.3% for 2026. Its forecast calls for home prices to be 1.7% higher in August 2027 than a year earlier.
“Looking ahead to 2027, mortgage rates will be the primary driver of home price trends and sales activity,” said Dr. Selma Hepp, chief economist at Cotality. “Many buyers halt their searches when rates exceed 7%, but as expectations shift from lower rates in 2027 to ‘higher for longer,’ some may opt to buy rather than keep waiting. Although, elevated rates and ongoing affordability challenges will favor markets with lower entry prices and strong local job growth over former high-growth pandemic hotspots.”
Midwest and Northeast Defy the Slowdown
The national numbers mask a sharply divided housing market.
Illinois recorded the strongest annual home-price growth among states in August, at 6.8%, followed by Connecticut at 6.3%, Indiana at 5.6%, New Jersey at 5.6% and Ohio at 4.8%.
Cotality attributed much of that strength to severe inventory shortages, limited new construction and the relative affordability of markets in the Midwest and Northeast. Buyers facing higher monthly mortgage payments are increasingly seeking markets where prices remain compatible with traditional debt-to-income ratios.
Twenty-one states reached new price-growth highs in August, according to Cotality.
The other side of the market is emerging across parts of the Sunbelt and West Coast, where higher inventories, new construction and affordability pressures are giving buyers more leverage.
Texas home prices fell 0.7% from a year earlier, while Washington declined 0.4% and Hawaii fell 0.7%. Colorado, Oregon, Arizona and Nevada recorded annual gains of less than 1%.
Cotality said those markets are being affected by a combination of newly completed homes and buyer resistance to higher monthly payments.
San Francisco Shows the Divide
San Francisco illustrates how annual price statistics can obscure a more immediate slowdown.
Prices in the city were 7.0% higher in August than a year earlier, but three-month price momentum had turned negative, falling 2.7%.
That suggests the market has cooled sharply even though its year-over-year gain remains among the strongest in the country.
The same pattern is appearing across a growing number of major markets. Cotality said 31 of the largest metropolitan areas had negative three-month price momentum in August, compared with 19 in July.
The shift matters because annual appreciation is inherently backward-looking. If prices weaken during the latter part of the year, the year-over-year measure can remain positive for months before reflecting the change in direction.
Rates Put Buyers on Hold
Mortgage rates have become the central constraint on housing demand.
Higher rates increase monthly payments even when home prices are flat, making affordability particularly difficult for households that do not have large down payments or substantial existing home equity.
At the same time, the market remains constrained by the so-called mortgage-rate lock-in effect. Homeowners with mortgages below today’s prevailing rates have little incentive to sell and replace inexpensive loans with substantially more costly financing.
That has helped keep supply tight in many markets and prevented higher borrowing costs from producing a broad national decline in home prices.
But where inventory is expanding, the equation is changing.
Cotality’s Market Risk Indicators identify Buffalo-Cheektowaga, New York; Cambridge-Newton-Framingham, Massachusetts; Providence-Warwick, Rhode Island-Massachusetts; St. Petersburg-Clearwater-Largo, Florida; and Worcester, Massachusetts among the markets at greatest risk of price declines over the next 12 months.
Housing Market Enters a More Selective Phase
The latest data point to a housing market that is neither broadly collapsing nor returning to the rapid appreciation seen during the pandemic.
Instead, affordability and local supply conditions are increasingly determining which markets continue to gain value and which are beginning to weaken.
Cotality expects the national market to post only modest appreciation over the next year. Its forecast of 1.7% annual growth by August 2027 would represent a sharp departure from the double-digit gains recorded in many markets earlier in the decade.
For buyers, a slower market could eventually bring greater negotiating power, particularly in areas where inventories are rebuilding. For sellers, however, the days of assuming that limited supply alone will support steadily rising prices may be ending.
The critical variable remains mortgage rates.
If borrowing costs fall, buyers who have delayed purchases could return quickly, providing support for prices in supply-constrained markets. If rates remain elevated, demand could weaken further and force more sellers to compete for a smaller pool of qualified buyers.
For now, the national housing market is still posting gains. But beneath that headline, the balance between buyers and sellers is beginning to shift.
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